A number of Sino-foreign mutual fund joint ventures have been firmed up this year, but speculation continues to grow about the potentially biggest foreign player, HSBC Asset Management, which made clear its intention to enter the market last year. Its size in Hong Kong and the bank side's presence on the mainland (it is reportedly negotiating a 20% stake in Bank of Communications, the fifth-largest lender) should make it a formidable competitor, provided it gets the right JV structure and relationship in place.

New rumours have surfaced that the firm is in discussions with Shanxi Provincial Trust and Investment to form a JV. Several competitors in Shanghai have expressed surprise that HSBC would hook up with an investment trust company, which have a bad reputation and, because of their provincial or municipal ownership, lack national distribution power.

But if this rumour proves accurate, it could solidify a new preference among foreign fund houses to work with trust companies, or at least with organizations that are better regulated than brokers - a sector that seems to be heading for regulatory trouble.

Blair Pickerell, Asia-Pacific CEO at HSBC-AM, declined to comment, other than to say the firm remains committed to working in China. He added that no announcement of any kind is imminent.

Officials at Shanxi Trust could not be reached for comment.

Of the seven JVs that have launched funds, only one was with a trust company, SG Asset Management's partner Fortune Trust. One was with an existing fund management company (ABN Amro Asset Management and Xiangcai Hefeng Fund Management), the rest with securities companies.

Indeed, the power of brokers was highlighted in March when Fortis Investment Management and Haitong Securities' JV raised a record Rmb13 billion.

But more new JV agreements are being made with trust companies. "Historically the ITIC's were very dodgy, but in the mid-1990s they were cleaned up dramatically," says a foreign market participant. Moreover, if HSBC does take a stake in Bank of Communications, presumably its distribution worries are over.

That contrasts with a growing list of regulatory problems with brokers, starting last year with Nanfung (Southern) Securities' blow-up over illegal asset management practices, and growing talks about several others.

The biggest recent tie-ups have involved partners other than brokers. JF Asset Management finally partnered with an ITIC, Shanghai International Trust & Investment, while Merrill Lynch Investment Managers teamed up with Bank of China International Holdings. And the other fund launch this year that broke records was by Citic Trust, which cooperates with the UK's Prudential.

Rumours about HSBC's alleged talks with Shanxi Trust assume that HSBC is looking for a partner prepared to let HSBC have de-facto control, such as agreeing to brand funds with the HSBC name. Shanxi Trust is small and almost certainly needs a foreign partner to make any headway in the competitive fund management landscape. Templeton has gone a similar route, teaming up with the relatively small Sealand Securities (the JV's first fund is expected soon).

HSBC is also expected to seek a deal giving it 49% ownership. China's agreement in joining WTO was to allow foreigners to increase ownership of JVs from 33% up to 49% in December of this year. Some rivals assume HSBC will wait to consummate a relationship till then, although this may be irrelevant, as it could also structure a deal now that included an automatic step-up.

There is no provision for foreign houses to own more than 49% of a fund management company at this point.